<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998
                               -------------

                                        OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the transition period from                      to
                               --------------------    --------------------

Commission File Number: 1-9358
                        ------

                             PETROLEUM HEAT AND POWER CO., INC.
                    -------------------------------------------------------
                    (Exact name of registrant as specified in its charter)

Minnesota                                               06-1183025
----------------------------------------                -------------------
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                         Identification No.)

2187 Atlantic Street, Stamford, CT                      06902
----------------------------------------                -------------------
(Address of principal executive Offices)                (Zip Code)

         Registrant's telephone number, including area code: (203) 325-5400
                                                             --------------


-------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
                                    report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes  X    No
                                     ---      ---


As of June 30, 1998 there were 23,961,907 shares of the Registrant's Class A
Common Stock, 11,228 shares of the Registrant's Class B Common Stock and
2,597,519 shares of the Registrant's Class C Common Stock outstanding.




<PAGE>




               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                               INDEX To Form 10-Q


<TABLE>
<CAPTION>

                                                                           Page
                                                                          ----

         <S>                                                              <C>
         Part 1       Financial Information:


         Item 1 - Financial Statements

              Condensed Consolidated Balance Sheets
              June 30, 1998 and December 31, 1997 .....................       3

              Condensed Consolidated Statements of Operations for the
              Three Months Ended
              June 30, 1998 and June 30, 1997
              and the Six Months Ended
              June 30, 1998 and June 30, 1997 .........................       4

              Condensed Consolidated Statement of Changes in
              Stockholders' Equity (Deficiency) for the
              Six Months Ended June 30, 1998 ..........................       5

              Condensed Consolidated Statements of Cash Flows for the
              Six Months Ended
              June 30, 1998 and June 30, 1997 .........................       6

              Notes to Condensed Consolidated Financial Statements ....   7 - 8


         Item 2 - Management's Discussion and Analysis of
                  Financial Condition and Results of Operations .......   9 - 13



         Part 2       Other Information:


         Item 4 - Submission of Matters to a Vote of Security Holders .       14

         Item 5 - Other Events ........................................  15 - 16

         Item 6 - Exhibits and Reports on Form 8-K ....................       17

         Signature ....................................................       18


</TABLE>


<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>

(In thousands, except per share data)                                               (Unaudited)
                                                                                      June 30,        December 31,
Assets                                                                                 1998             1997
------
<S>                                                                                  <C>             <C>
Current assets:
  Cash ............................................................................  $ 33,223        $  2,390
  Accounts receivable (net of allowance of $1,728 and $980) .......................    46,960          78,987
  Inventories .....................................................................    11,063          16,285
  Prepaid expenses ................................................................     7,076           6,203
  Notes receivable and other current assets .......................................     1,018           1,259
                                                                                      -------         -------
     Total current assets .........................................................    99,340         105,124
                                                                                      -------         -------
Property, plant and equipment - net ...............................................    29,964          30,615
Intangible assets (net of accumulated amortization
 of $296,914 and $285,850)
   Customer lists .................................................................    60,439          69,265
   Deferred charges ...............................................................    22,685          24,924
                                                                                      -------         -------
                                                                                       83,124          94,189
                                                                                      -------          ------
Investment in and advances to the Star Gas Partnership ............................    23,851          27,499
Deferred gain on Star Gas Transaction .............................................   (19,964)        (19,964)
                                                                                      -------         -------
                                                                                        3,887           7,535
                                                                                      -------           -----
Cash collateral account ...........................................................    11,800           9,350
Other assets ......................................................................     1,005           1,033
                                                                                      -------         -------
                                                                                     $229,120        $247,846
                                                                                      -------        --------
                                                                                      -------        --------
Liabilities and Stockholders' Equity (Deficiency)

Current liabilities:
  Working capital borrowings ......................................................  $   -           $  3,000
  Current debt ....................................................................     2,391           2,391
  Current maturities of redeemable preferred stock ................................     4,167           4,167
  Accounts payable ................................................................     5,688          14,759
  Customer credit balances ........................................................    20,881          20,767
  Unearned service contract revenue ...............................................    12,736          15,321
  Accrued expenses and other liabilities ..........................................    30,338          32,283
                                                                                      -------         -------
     Total current liabilities ....................................................    76,201          92,688
                                                                                      -------         -------

Supplemental benefits and other long-term liabilities .............................     5,022           5,043
Pension plan obligation ...........................................................     5,689           5,702
Notes payable and other long-term debt ............................................    14,237          16,507
Senior notes payable ..............................................................    62,050          63,100
Subordinated notes payable ........................................................   208,300         209,350

Redeemable and exchangeable preferred stock .......................................    32,687          32,489

Common stock redeemable at option of stockholder (83 Class A and
 21 Class C shares) ...............................................................       656             656
Note receivable from stockholder                                                         (656)           (656)

Stockholders' equity (deficiency):
 Class A common stock-par value $.10 per share; 60,000 shares
  authorized, 23,879 and 23,606 shares issued and outstanding .....................     2,389           2,361
 Class B common stock-par value $.10 per share; 6,500 shares
  authorized, 11 shares issued and outstanding ....................................         1               1
 Class C common stock-par value $.10 per share; 5,000 shares
  authorized, 2,577 shares issued and outstanding .................................       258             258
 Additional paid-in capital .......................................................    81,821          81,358
 Deficit ..........................................................................  (254,889)       (256,365)
 Minimum pension liability adjustment .............................................    (4,646)         (4,646)
                                                                                      -------         -------
     Total stockholders' equity (deficiency) ......................................  (175,066)       (177,033)
                                                                                      -------         -------
                                                                                     $229,120        $247,846
                                                                                      -------        --------
                                                                                      -------        --------

</TABLE>



     See accompanying notes to condensed consolidated financial statements.


                                      - 3 -

<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements of Operations
                                   (Unaudited)


<TABLE>
<CAPTION>

(In thousands, except per share data)                        Three Months                    Six Months
                                                            Ended June 30,                  Ended June 30,

                                                          1998          1997              1998          1997
                                                          ----          ----              ----          ----

<S>                                                   <C>            <C>              <C>           <C>
Net sales ..........................................  $  66,227     $  87,972         $ 249,366     $ 336,067
Cost of sales ......................................     47,701        64,558           157,320       228,063
                                                       --------      --------          --------      --------
  Gross profit .....................................     18,526        23,414            92,046       108,004

Selling, general and administrative expenses .......     20,436        24,738            43,186        50,034
Direct delivery expense ............................      4,445         5,621            14,482        17,768
Restructuring charges ..............................       -            1,300               535         1,300
Corporate identity expenses ........................       -            2,110               152         2,110
Amortization of customer lists .....................      4,391         4,431             8,826         8,931
Depreciation of plant and equipment ................      1,580         1,830             3,428         3,551
Amortization of deferred charges ...................      1,106         1,174             2,238         2,304
Provision for supplemental benefits ................         90           142               179           283
                                                       --------      --------          --------      --------
  Operating income (loss) ..........................    (13,522)      (17,932)           19,020        21,723

Other income (expense):
 Interest expense ..................................     (8,210)       (8,344)          (16,485)      (17,149)
 Interest income  ..................................        752           713             1,213         1,123
 Other .............................................         83            13               116            38
                                                       --------      --------          --------      --------
  Income (loss) before income taxes and
   equity interest .................................    (20,897)      (25,550)            3,864         5,735

Income taxes (benefit) .............................        (50)          (25)              325           350
                                                       --------      --------          --------      --------
  Income (loss) before equity interest .............    (20,847)      (25,525)            3,539         5,385

Share of earnings (loss) of Star Gas Partnership ...     (2,127)       (1,929)              465           549
                                                       --------      --------          --------      --------
  Net income (loss) ................................  $ (22,974)    $ (27,454)        $   4,004     $   5,934
                                                       --------      --------          --------      --------
                                                       --------      --------          --------      --------


Preferred Stock dividends ..........................       (965)         (921)           (2,528)       (1,817)
                                                       --------      --------          --------      --------
  Net income (loss) applicable to common stock .....  $ (23,939)    $ (28,375)        $   1,476     $   4,117
                                                       --------      --------          --------      --------
                                                       --------      --------          --------      --------
 Class C Common Stock ..............................  $    (.90)    $   (1.09)        $     .06     $     .16

Diluted earnings (losses) per Class A and
 Class C Common Stock ..............................  $    (.90)    $   (1.09)        $     .06     $     .16



</TABLE>











    See accompanying notes to condensed consolidated financial statements.





                                    - 4 -


<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
                                   (Unaudited)

                         Six Months Ended June 30, 1998

(In thousands)

<TABLE>
<CAPTION>

                                          Common Stock                       
                    ---------------------------------------------------------
                        Class A             Class B             Class C                                   Minimum
                    ---------------------------------------------------------   Additional                Pension
                     No. of              No. of              No. of               Paid-In                Liability
                     Shares    Amount    Shares    Amount    Shares    Amount     Capital    Deficit         Adj.      Total
                    -------    ------    ------    ------    ------    ------   -----------  -------     ---------     -----

<S>                 <C>       <C>        <C>       <C>      <C>        <C>      <C>          <C>        <C>          <C>
Balance at
 December 31, 1997   23,606    $2,361      11        $1       2,577     $258     $81,358    $(256,365)   $(4,646)    $(177,033)

Net income                                                                                      4,004                    4,004

Cash dividends
 declared and paid                                                                             (2,528)                  (2,528)

Class A Common
 Stock issued
 under the Dividend
 Reinvestment Plan      268        27                                                578                                   605

Other                     5         1                                               (115)                                 (114)

Balance at
                     ------    ------        --        --     -----     ----     -------    ---------     -------    --------- 
 June 30, 1998       23,879    $2,389        11        $1     2,577     $258     $81,821    $(254,889)    $(4,646)   $(175,066)
                     ------    ------        --        --     -----     ----     -------    ---------     -------    --------- 
                     ------    ------        --        --     -----     ----     -------    ---------     -------    --------- 

</TABLE>


























See accompanying notes to condensed consolidated financial statements.




                                        5 
<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                           Six Months Ended
(In thousands)                                                                  June 30,
                                                                        ---------------------
                                                                        1998             1997
                                                                        ----             ----
<S>                                                                  <C>              <C>
Cash flows from (used in) operating activities:
Net income                                                           $  4,004         $  5,934
Adjustments to reconcile net income to
 net cash provided by (used in) operating activities:
  Amortization of customer lists                                        8,826            8,931
  Depreciation of plant and equipment                                   3,428            3,551
  Amortization of deferred charges                                      2,238            2,304
  Share of income of Star Gas                                            (465)            (549)
  Provision for losses on accounts receivable                             913              953
  Provision for supplemental benefits                                     179              283
  Other                                                                  (129)             (51)

  Change in Operating Assets and Liabilities, net of 
  effects of acquisitions and dispositions:
    Decrease in accounts receivable                                    31,114           18,904
    Decrease in inventory                                               5,222           10,687
    Increase in other current assets                                     (632)            (471)
    Decrease (increase) in other assets                                    28             (137)
    Decrease in accounts payable                                       (9,071)         (10,894)
    Increase (decrease) in customer credit balances                       114           (6,472)
    Decrease in unearned service contract revenue                      (2,585)          (1,827)
    Increase in accrued expenses                                           18              711
                                                                      --------         -------
 Net cash provided by operating activities                             43,202           31,857
                                                                      -------          -------

Cash flows from (used in) investing activities:
Minimum quarterly distributions from Star Gas Partnership               2,842            2,754
Acquisitions                                                               -            (5,625)
Capital expenditures                                                   (2,778)          (1,195)
Net proceeds from sales of fixed assets                                   117              382
                                                                      --------         -------
 Net cash provided by (used in) investing activities                      181           (3,684)
                                                                      --------         -------

Cash flows from (used in) financing activities:
Net proceeds from sale of Star Gas Units                                1,271              -
Net proceeds from issuance of common stock                                605            1,172
Net proceeds from issuance of preferred stock                              -            28,362
Repayment of senior notes payable                                      (1,050)          (1,050)
Repayment of subordinated notes payable                                (1,050)          (1,050)
Credit facility borrowings                                              5,000           13,000
Credit facility repayments                                             (8,000)         (35,000)
Decrease (increase) in restricted cash                                 (2,450)           1,500
Cash dividends paid                                                    (4,491)          (7,606)
Other                                                                  (2,385)          (2,586)
                                                                      -------          -------
 Net cash used in financing activities                                (12,550)          (3,258)
                                                                      -------          -------

 Net increase in cash                                                  30,833           24,915
 Cash at beginning of year                                              2,390            3,257
                                                                      -------          -------

 Cash at end of period                                               $ 33,223         $ 28,172
                                                                     --------         --------
                                                                     --------         --------

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
 Interest                                                            $ 16,592         $ 17,213
 Income taxes                                                        $     37         $    135


</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                        6 
<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

     1. Basis of Presentation

     The consolidated financial statements include the accounts of Petroleum
     Heat and Power Co., Inc., and its subsidiaries ("Petro" or "the Company").
     The financial information included herein is unaudited; however, such
     information reflects all adjustments (consisting solely of normal recurring
     adjustments) which are, in the opinion of management, necessary for the
     fair statement of financial condition and results for the interim periods.

     The results of operations for the six months ended June 30, 1998 are
     not necessarily indicative of the results to be expected for the full
     year.

     2.  Accounting Changes

     In June 1997, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 130 - "Reporting
     Comprehensive Income." SFAS No. 130 establishes standards for reporting
     comprehensive income and its components in financial statements and notes
     thereto. This statement is effective for fiscal years beginning after
     December 15, 1997. SFAS No. 130 was adopted and the Company's comprehensive
     income consists of net income and the minimum pension liability adjustment.
     Comprehensive loss for the three months ended June 30, 1998 and 1997, was
     $(22,974) and $(27,454), and comprehensive income for the six months ended
     June 30, 1998, was $4,004 and $5,934 respectively. Accumulated other
     comprehensive income at June 30, 1998 and December 31, 1997 was $(4,646).
     The Company calculates its minimum pension liability adjustment annually in
     the fourth quarter in accordance with SFAS No. 87 - "Employers' Accounting
     for Pensions" and no adjustment is reflected in quarterly comprehensive
     income until such time.

     In June 1997 the FASB issued SFAS No. 131 - "Disclosures about Segments of
     an Enterprise and Related Information." SFAS No. 131 requires disclosures
     about segments of an enterprise and related information such as the
     different types of business activities and economic environments in which a
     business operates. This statement is effective for fiscal years beginning
     after December 15, 1997. The Company is still assessing the disclosure
     requirements of this statement and as permitted will implement the
     reporting requirements of this SFAS in its year-end financial statements.

<TABLE>
<CAPTION>


     3.  Earnings Per Share                                              Three Months                       Six Months
                                                                        Ended June 30,                    Ended June 30,
                                                                        --------------                    --------------
                                                                     1998            1997               1998           1997
                                                                     ----            ----               ----           ----
<S>                                                                <C>             <C>                 <C>            <C>
      Basic Earnings (Losses) Per Share:
      Net income (loss)                                            $(22,974)       $(27,454)           $  4,004       $ 5,934
      Less:  Preferred stock dividends                                 (965)           (921)             (2,528)       (1,817)
                                                                     ------          ------              ------        ------
       Income (loss) available to common
        stockholders (Numerator)                                   $(23,939)       $(28,375)           $  1,476       $ 4,117
                                                                   --------        --------            --------       -------
                                                                   --------        --------            --------       -------
      Class A Common Stock                                           23,962          23,326              23,958        23,238
      Class B Common Stock                                               11              11                  11            11
      Class C Common Stock                                            2,598           2,598               2,598         2,598
                                                                     ------          ------              ------        ------
       Weighted average shares outstanding
        (Denominator)                                                26,571          25,935              26,567        25,847
                                                                     ------          ------              ------        ------
                                                                     ------          ------              ------        ------

      Basic earnings (losses) per share                            $   (.90)       $  (1.09)           $    .06       $   .16
                                                                     ------          ------              ------        ------
                                                                     ------          ------              ------        ------
      Diluted Earnings (Losses) Per Share:
      Effect of dilutive securities                                $    -          $    -              $    -         $    -
                                                                     -------         -------             -------       -----
       Income (loss) available to common
        stockholders (Numerator)                                   $(23,939)       $(28,375)           $  1,476       $ 4,117
                                                                     ------          ------              ------        ------
                                                                     ------          ------              ------        ------
      Weighted average shares outstanding                            26,571          25,935              26,567        25,847
      Effect of dilutive securities -
       Stock Grants                                                     - *             - *                 195            22
                                                                     -------         -------             ------        ------
       Adjusted weighted average shares
        (Denominator)                                                26,571          25,935              26,762        25,869
                                                                     ------          ------              ------        ------
                                                                     ------          ------              ------        ------
      Diluted earnings (losses) per share                          $   (.90)       $  (1.09)           $    .06       $   .16
                                                                     ------          ------              ------        ------
                                                                     ------          ------              ------        ------

</TABLE>



     * 0 shares included due to loss in the period.


                                        7 
<PAGE>

               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)


     4.  Deferred Gain on the 1995 Star Gas Transaction

     In accordance with the Company's accounting policies, the Company deferred
     the gain of approximately $20.0 million on the 1995 Star Gas transaction
     because the Company received subordinate units which do not have a readily
     ascertainable market price creating an uncertainty regarding realization,
     and due to the fact that Star Gas as general partner had a $6.0 million
     additional capital contribution obligation to enhance the Partnership's
     ability to make quarterly distributions on the common units (at June 30,
     1998, these funds were no longer restricted at the Star Gas level because
     they had been released to Petro since the quarterly guarantee provisions
     were fulfilled). The Company will recognize the gain from this transaction
     when the Company's subordinated units convert into common units in
     accordance with the terms of the partnership agreement. In general, full
     conversion of subordinated units to common units will take place no earlier
     than the first day of any quarter beginning on or after January 1, 2001,
     based upon the satisfaction of certain performance criteria for a period of
     at least three non-overlapping consecutive four-quarter periods immediately
     preceding the conversion date.







                                       8 
<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

Overview

In analyzing Petro's results for the six-month period ended June 30, 1998, one
should consider the seasonal nature of the Company's business, which results in
the sale by the Company of approximately 50% of its annual volume of fuel oil in
the first quarter, 30% in the fourth quarter, and 20% in the second and third
quarters combined. Unlike this pattern of distribution, however, many of the
Company's costs are incurred evenly throughout the year, resulting in
non-heating season operating and net losses.


Six Months Ended June 30, 1998
Compared to Six Months Ended June 30, 1997

Volume. Home heating oil volume decreased 20.1% to 203.3 million gallons for the
six months ended June 30, 1998, as compared to 254.3 million gallons for the six
months ended June 30, 1997. This decline was largely due to 16.5% warmer weather
for the period, including the 19.8% warmer weather in the first quarter of 1998,
the period during which the company sells approximately 50% of its annual
volume. In addition, volume was negatively impacted by the sale of the Company's
Hartford, CT operations in November 1997 and by net account attrition. Partially
offsetting these factors was the acquisition by the Company of eleven
individually insignificant heating oil companies during 1997.

Net sales. Net sales decreased 25.8% to $249.4 million for the six months ended
June 30, 1998, as compared to $336.1 million for the six months ended June 30,
1997. This decline reflects the impact of decreased volume as well as the impact
of lower selling prices associated with lower wholesale costs.

Gross profit. Gross profit decreased 14.8% to $92.0 million for the six months
ended June 30, 1998, as compared to $108.0 million for the six months ended June
30, 1997, due to the decline in volume described above. Gross profit did not
decline to the same extent as volume due to an increase of 3.3 cents per gallon
in home heating oil margins in 1998 as compared to 1997, as well as a decline in
net service expense, which is included in the Company's calculation of gross
profit. The service expense decline was both a result of productivity
improvements and weather-related.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 13.7% to $43.2 million for the six months
ended June 30, 1998, as compared to $50.0 million for the six months ended June
30, 1997. This $6.8 million decline was due both to reductions in certain
expenses resulting from the Company's operational restructuring programs, and to
the Company's ability to reduce certain overhead costs in response to a decline
in volume. Also contributing to this decline were significant reductions in
corporate staff which were substantially completed in December of 1997 as part
of our corporate restructuring programs.

Direct delivery expenses. Direct delivery expenses decreased 18.5% to $14.5
million for the six months ended June 30, 1998, as compared to $17.8 million for
the six months ended June 30, 1997. This $3.3 million reduction reflects both
the Company's ability to reduce costs in response to a decline in volume and its
productivity improvements.

Restructuring charges. Restructuring charges of $0.5 million for the six months
ended June 30, 1998 represent the continuation in the first quarter of 1998 of
corporate staff reductions. Charges for the six months ended June 30, 1997,
which total $1.3 million, represent costs associated with the Company's
regionalization and consolidation program in the New York/Long Island region.

Corporate identity expenses. Corporate identity expenses for the six months
ended June 30, 1998 were $0.2 million, as compared to $2.1 million for the six
months ended June 30, 1997. These expenses represent costs associated with the
Company's brand identity program, implemented in the Company's New York and Mid
Atlantic regions during 1997 and 1998. They include the cost of repainting all
delivery and service vehicles to reflect the Company's new identity. Through
this program the Company intends to capitalize on its size by building
significant brand equity in one "Petro" brand name, rather than the multiple
names previously in use.

Amortization of customer lists. Amortization of customer lists decreased 1.2% to
$8.8 million for the six months ended June 30, 1998, as compared to $8.9 million
for the six months ended June 30, 1997, as the impact of certain customer lists
becoming fully amortized exceeded the impact of the Company's recent
acquisitions.



                                       9
<PAGE>



Depreciation and amortization of plant and equipment. Depreciation and
amortization of plant and equipment decreased 3.5% to $3.4 million for the six
months ended June 30, 1998, as compared to $3.6 million for the six months ended
June 30, 1997, as the impact of certain assets becoming fully depreciated
exceeded the impact of the Company's recent fixed asset additions.

Amortization of deferred charges. Amortization of deferred charges decreased
2.9% to $2.2 million for the six months ended June 30, 1998, as compared to $2.3
million for the six months ended June 30, 1997, as the impact of certain
deferred charges becoming fully amortized exceeded the impact of the deferred
charges associated with the Company's recent acquisitions.

Operating income. Operating income decreased 12.4% to $19.0 million for the six
months ended June 30, 1998, as compared to $21.7 million for the six months
ended June 30, 1997. This decline was primarily a result of the weather-related
decline in volume, partially offset by the Company's ability to contain certain
operating expenses in response to the warm weather, by expense reductions
resulting from the Company's operational restructuring programs, and by an
increase in the Company's heating oil margins.

Net interest expense. Net interest expense decreased 4.7% to $15.3 million for
the six months ended June 30, 1998, as compared to $16.0 million for the six
months ended June 30, 1997. This was due to lower working capital borrowings and
to a slight decline in other average borrowings outstanding.

Equity in earnings of Star Gas Partnership. Equity in the earnings of Star Gas
Partnership declined 15.3% to $0.5 million for the six months ended June 30,
1998. This decline was due to the impact of warm weather on Star Gas'
operations, largely offset by the impact of Star's Pearl Gas acquisition which
occurred in October 1997.

Net income. Net income declined 32.5% to $4.0 million for the six months ended
June 30, 1998, as compared to $5.9 million for the six months ended June 30,
1997. This decline was largely due to the impact of the extremely warm weather
on the Company's volume, partially offset by decreased operating expenses,
improved margins, and by lower net interest expense.

EBITDA*. EBITDA decreased 8.4% to $33.7 million for the six months ended June
30, 1998, as compared to $36.8 million for the six months ended June 30, 1997.
Excluding the impact of one-time charges for restructuring and corporate
identity, EBITDA declined 14.5%, to $34.4 million from $40.2 million. This
decline was due to the 20.1% decline in volume, partially offset by margin
improvement, the Company's ability to control certain overhead costs in response
to the decline in volume and expense reductions resulting from the Company's
operational restructuring programs.


*EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is
defined as operating income before depreciation, amortization, non-cash charges
relating to the grant of stock options to executives of the Company, non-cash
charges associated with deferred compensation plans and other non-cash charges
of a similar nature, if any. EBITDA is a non-GAAP measure that may not be
comparable to measures of the same title reported by other companies and should
not be considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity or
availability to service debt obligations), but provides additional significant
information in that EBITDA is a principal basis upon which the Company assesses
its financial performance.




















                                      10



<PAGE>


Three Months Ended June 30, 1998
Compared to Three Months Ended June 30, 1997

Volume. Home heating oil volume decreased 24.3% to 46.8 million gallons for the
three months ended June 30, 1998, as compared to 61.8 million gallons for the
three months ended June 30, 1997. This decline was largely due to 28.4% warmer
weather for the period, as well as the impact of the sale of the Company's
Hartford, CT operations in November 1997. Partially offsetting these factors was
the acquisition by the Company of eleven individually insignificant heating oil
companies during 1997.

Net sales. Net sales decreased 24.7% to $66.2 million for the three months ended
June 30, 1998, as compared to $88.0 million for the three months ended June 30,
1997. This decline reflects the impact of decreased volume as well as the impact
of lower selling prices associated with lower wholesale costs.

Gross profit. Gross profit decreased 20.9% to $18.5 million for the three months
ended June 30, 1998, as compared to $23.4 million for the three months ended
June 30, 1997, due to the decline in volume described above. Gross profit did
not decline to the same extent as volume due to an increase of 1.9 cents per
gallon in home heating oil margins in 1998 as compared to 1997, as well as a
decline in net service expense, which is included in the Company's calculation
of gross profit. The service expense decline was both a result of the Company's
productivity improvements and weather-related.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 17.4% to $20.4 million for the three months
ended June 30, 1998, as compared to $24.7 million for the three months ended
June 30, 1997. This $4.3 million decline was due both to reductions in certain
expenses resulting from the Company's operational restructuring programs, and to
the Company's ability to reduce certain overhead costs in response to a decline
in volume. Also contributing to this decline were significant reductions in
corporate staff which were substantially completed in December of 1997 as part
of the Company's corporate restructuring programs.

Direct delivery expenses. Direct delivery expenses decreased 20.9% to $4.4
million for the three months ended June 30, 1998, as compared to $5.6 million
for the three months ended June 30, 1997. This $1.2 million reduction reflects
both the Company's ability to reduce costs in response to a decline in volume
and its productivity improvements.

Restructuring charges. Restructuring charges for the three months ended June 30,
1997, which total $1.3 million, represent costs associated with the Company's
regionalization and consolidation program in the New York/Long Island region.
There were no restructuring charges for the three months ended June 30, 1998.

Corporate identity expenses. Corporate identity expenses of $2.1 million for the
three months ended June 30, 1997 represent costs associated with the Company's
brand identity program, implemented the Company's New York and Mid Atlantic
regions during 1997. These costs include the cost of repainting all delivery and
service vehicles to reflect the company's new identity. Through this program the
Company intends to capitalize on its size by building significant brand equity
in one "Petro" brand name, rather than the multiple names previously in use.

Amortization of customer lists. Amortization of customer lists remained flat at
$4.4 million for the three months ended June 30, 1998, as the impact of the
Company's recent acquisitions was approximately equal to the impact of certain
customer lists becoming fully amortized.

Depreciation and amortization of plant and equipment. Depreciation and
amortization of plant and equipment decreased 13.7% to $1.6 million for the
three months ended June 30, 1998, as compared to $1.8 million for the three
months ended June 30, 1997, as the impact of certain assets becoming fully
depreciated exceeded the impact of the Company's recent fixed asset additions.

Amortization of deferred charges. Amortization of deferred charges decreased
5.8% to $1.1 million for the three months ended June 30, 1998, as compared to
$1.2 million for the three months ended June 30, 1997, as the impact of certain
deferred charges becoming fully amortized exceeded the impact of the deferred
charges associated with the Company's recent acquisitions.

Operating loss. Operating loss improved 24.6% to a loss of $13.5 million for the
three months ended June 30, 1998, as compared to a loss of $17.9 million for the
three months ended June 30, 1997. The primary reason for this improvement was
the absence in the second quarter of 1998 of restructuring charges and corporate
identity expenses which amounted to $3.4 million for the three months ended June
30, 1997. The remaining improvement of $1.0 million was achieved despite a
significant volume decline and was affected by the Company's ability to reduce
certain operating expenses in response to the warm weather, by expense
reductions resulting from the Company's operational restructuring programs, and
by an increase in the Company's heating oil margins.

Net interest expense. Net interest expense decreased 2.3% to $7.5 million for
the three months ended June 30, 1998, as compared to $7.6 million for the three
months ended June 30, 1997. This was due to a slight decline in average
borrowings outstanding.



                                      11
<PAGE>



Equity in loss of Star Gas Partnership. Equity in the loss of Star Gas
Partnership increased 10.3% to a loss of $2.1 million for the three months ended
June 30, 1998, as compared to a loss of $1.9 million for the three months ended
June 30, 1997. This decline was due to the impact of warm weather on Star Gas'
operations, largely offset by the impact of Star's Pearl Gas acquisition.

Net loss. Net loss improved 16.3% to a loss of $23.0 million for the three
months ended June 30, 1998, as compared to a loss of $27.5 million for the three
months ended June 30, 1997. The primary reason for this improvement was the
absence in the second quarter of 1998 of restructuring charges and corporate
identity expenses which amounted to $3.4 million for the three months ended June
30, 1997. The remaining improvement of $1.1 million was achieved despite a
significant volume decline and was affected by the Company's ability to contain
certain operating expenses in response to the warm weather, by expense
reductions resulting from the Company's operational restructuring programs, and
by an increase in the Company's heating oil margins.

EBITDA. EBITDA improved 38.6% to a loss of $6.4 million for the three months
ended June 30, 1998, as compared to a loss of $10.4 million for the three months
ended June 30, 1997. Excluding the impact of one-time charges for restructuring
and corporate identity, EBITDA improved 8.5%, from a loss of $6.9 million to a
loss of $6.4 million. This improvement was despite a significant volume decline
and was affected by the Company's ability to contain certain operating expenses
in response to the warm weather, by expense reductions resulting from the
Company's operational restructuring programs, and by an increase in the
Company's heating oil margins.


Liquidity and Financial Condition

Net cash provided by operating activities of $43.2 million combined with the
$1.3 million net proceeds from the sale of Star Gas units amounted to $44.5
million. These funds were utilized in investing activities for the purchase of
fixed assets of $2.7 million; and in financing activities to repay notes payable
of $1.05 million, repay subordinated notes of $1.05 million, repay net credit
facility borrowings of $3.0 million, pay preferred stock cash dividends of $4.5
million, increase the cash collateral account maintained with the Company's
lenders to secure certain letter-of-credit obligations of $2.4 million, and for
other financing activities of $2.4 million, which is comprised mainly of the
redemption of $2.3 million of Notes Payables issued in connection with the
purchase of fuel oil dealers. These financing activities were partially offset
by cash provided from the Star Gas minimum quarterly distribution of $2.8
million, and proceeds from dividend reinvestments of $0.6 million. As a result
of the above activities, the Company's cash balance increased by $30.8 million
since December 31, 1997.

In July 1998, the Company renewed its $47.0 million working capital revolving
credit facility which will expire in June 1999. In consideration for the
extension of this facility to June 1999, the Company agreed to, amongst other
things, pay no common cash dividends and not make any acquisitions of other
companies. As the Company's current capital constraints already imposes a limit
to such activity, the impact of these prohibitions is minimal. At June 30, 1998
no amount was outstanding under this credit facility, and the Company had $23.1
million of working capital.

For the remainder of 1998 the Company anticipates repaying $4.2 million of
redeemable preferred stock and paying, subject to declaration by the Board of
Directors, $2.5 million of preferred dividends. Furthermore, the Company
currently has no material commitments for capital expenditures.

Based on the Company's current working capital position and expected net cash
provided by operating activities, the Company expects to be able to meet all its
other current obligations as they become due.


Year 2000

The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Year 2000 problem is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company presently believes that, with modifications to
existing software and converting to new software, which the Company expects to
implement on a timely basis, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted. Estimated costs associated with this conversion is anticipated to be
less then two hundred thousand dollars. However, if such modifications and
conversions are not completed timely, the Year 2000 problem may have a material
adverse impact on the operations of the Company.

Restructuring Charges




                                      12

<PAGE>

Late in 1995 the Company completed a study engaged with a leading consulting
firm to help provide a structure for superior customer service, a brand image,
and reduced operating costs. Over the last few years the Company has dedicated a
large amount of effort toward defining the best organizational structure, and
has implemented various initiatives toward achieving this objective.

As part of the initial implementation of this program, Petro undertook certain
business improvement strategies in its Long Island, New York region. These steps
included the consolidation of the region's five home heating oil branches into
one central customer service center and three depots. The regional customer
service center consolidated accounting, credit, customer service and the sales
function into a single new facility in Port Washington, Long Island. All
external communications and marketing previously undertaken in the five branches
were centralized into this one location freeing the three newly configured
depots to focus on oil delivery and heating equipment repair, maintenance and
installation, in mutually exclusive operating territories. The Company incurred
$1.2 million in restructuring expenses in fiscal 1996, for costs associated with
the initial implementation of the restructuring program.

In 1997 the Company continued with its restructuring program and combined its
three New York City branches into one new central depot that specialized in
delivery, installation, maintenance, and service functions, and like the Long
Island depots, is supported by the Port Washington facility. The Company also
proceeded with its commitment to define the best possible organizational
structure, by restructuring select branch and corporate responsibilities to
eliminate redundant functions and locate responsibilities where they can best
serve customers and the Company. Toward achieving these strategic intentions the
Company incurred $2.9 million in restructuring expenses in fiscal 1997, which
comprised of $2.0 million in termination benefit arrangements with certain
branch and corporate employees and $0.9 million for continuing lease obligations
for unused, non-cancelable, non-strategic facilities.

The Company continued its restructuring and cost reduction initiative, incurring
$0.5 million in termination benefit arrangements with certain corporate
employees for the first six months of 1998. The Company does not have any
additional restructuring plans for the remainder of 1998.


Statement Regarding Forward-Looking Disclosure

This report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act which represent
the Company's expectations or beliefs concerning future events that involve
risks and uncertainties, including those associated with the effect of weather
conditions on the company's financial performance, the price and supply of home
heating oil, the ability of the Company to obtain new accounts and retain
existing accounts and the ability of the Company to realize cost reductions from
its operational restructuring program. All statements other than statements of
historical facts included in this Report including, without limitation, the
statements under "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and elsewhere herein, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct.






















                                      13
<PAGE>



                            PART II OTHER INFORMATION


Item 4.       Submission of Matters to a Vote of Security Holders

(a) Annual Meeting of Shareholders June 3, 1998.

(c)  Proposals
<TABLE>
<CAPTION>

              1.  Election
                  of Directors              For          Against     Withheld      Abstain

                <S>                      <C>             <C>          <C>          <C>
                  Irik P. Sevin            40,240,206         *          152,562         *
                  Audrey L. Sevin          40,240,206         *          152,562         *
                  Phillip Ean Cohen        40,240,206         *          152,562         *
                  Thomas J. Edelman        40,240,206         *          152,562         *
                  Wolfgang Traber          40,240,206         *          152,562         *
                  Paul Biddelman           40,235,436         *          157,331         *
                  Stephen Russell          40,240,206         *          152,562         *

</TABLE>



              2.  Ratification of Appointment of KPMG Peat Marwick LLP as the
                  Company's Independent Auditors
<TABLE>
<CAPTION>

                                           For               Against              Abstain

                                         <S>                 <C>                  <C>
                                          49,369,265            25,686               6,816




</TABLE>




































                                      14
<PAGE>

Item 5.       Other Events

Petroleum Heat and Power Co., Inc. and Star Gas Partners, L.P., Business
Combination

In August 1998, the Company and Star Gas Partners, L.P. ("Star," "Star Gas," 
or "the Partnership") announced that they have reached an agreement in 
principle to enter into a strategic business combination in which Petro would 
become a wholly owned subsidiary of Star ("Star Gas/Petro Transaction"). 
This transaction would be effected through Petro Shareholders exchanging 
their approximately 26.6 million shares of Petro Common Stock for 
approximately 3.6 million Star master limited partnership Units which will be 
subordinated to the existing Star Common Units.

Star Gas currently distributes to its partners, on a quarterly basis, all of its
Available Cash, which is generally all of the cash receipts of the Partnership
less all cash disbursements, with a targeted Minimum Quarterly Distribution
("MQD") of $0.55 per Unit, or $2.20 per Unit on an annualized basis. In
connection with the Petro transaction, the Partnership will increase the MQD to
$.575 per unit or $2.30 per Unit on an annualized basis. This increase in the
MQD reflects the expectation that the transaction will be accretive to the
Partnership. The increase in the MQD will also serve to raise the threshold
needed to end the Subordination Period.

Of the 3.6 million subordinated Partnership units anticipated to be distributed
to Petro shareholders, 2.8 million will be Senior Subordinated Units and
approximately 857,000 will be Junior Subordinated Units and General Partnership
Interests. The Senior Subordinated Units will be publicly registered and
tradable (they are expected to be listed on the NYSE) and will be subordinated
in distributions to Star's Common Units. The Junior Subordinated Units and
General Partnership Interests will not be registered nor publicly tradable and
will be subordinated to both the Common Units and the Senior Subordinated Units.
The Senior Subordinated Units will be exchanged with holders of Petro's publicly
traded Class A common stock and the Junior Subordinated Units and General
Partnership Interest will be exchanged with individuals that currently own
Petro's Class C common stock. Certain holders of the Company's Class C 
common stock will also exchange their shares for Senior Subordinated Units.

It is currently contemplated that 21,177,000 shares of Petro Common
Stock will be exchanged for 2,767,000 Star Gas Senior Subordinated Units.
5,386,000 shares of Petro common stock, held by certain individuals
who currently own Petro Class C common stock, including Irik P. Sevin, Chairman
of Petro and Star Gas and other members of a group that currently controls
Petro, will be exchanged for 579,000 Junior Subordinated Units and 
General Partnership Interests which are economically equivalent to 279,000 
Junior Subordinated Units.

Under the partnership subordination provision, distributions on Star Senior 
Subordinated Units may be made only after distributions of Available Cash on 
Common Units meet the Minimum Quarterly Distribution requirement. 
Distributions on Star Junior Subordinated Units and to the General Partner 
may be made only after distributions of Available Cash on Common Units and 
Senior Subordinated Units meet the Minimum Quarterly Distribution 
requirement. The Subordination Period will generally extend until the 
Partnership earns and pays its MQD for three years. In any event, as a 
condition of this transaction, the Partnership agreement will be amended so 
that no distribution will be paid on the Senior Subordinated Units, Junior 
Subordinated Units, or to the General Partner except to the extent Available 
Cash is earned from operations.

Like many other publicly traded master limited partnerships, the Partnership
contains a provision which provides the General Partner incentive 
distributions in excess of certain targeted amounts. 
This provision will be modified so that should there be any such incentive
distributions, they will be made pro rata to the Senior Subordinated Units
and Junior Subordinated Units as well as to the General Partner.

In connection with the Transaction, the Senior Subordinated Units, Junior
Subordinated Units and General Partnership Interests can earn, pro rata, 303,000
additional Senior Subordinated Units each year that Petro provides $.50 per unit
accretion to Star to a maximum of 909,000 additional Senior Subordinated Units.

In connection with the transaction, Star Gas intends to raise approximately $140
million through a public offering of Common Units and $120 million through a
public or private offering of debt securities. The net proceeds from these
offerings will be used primarily to redeem approximately $240 million in Petro
public and private debt and preferred stock. Any such offering will be made only
by means of a prospectus or in transactions not requiring registration under
securities laws. This announcement does not constitute an offer to sell any
securities. As part of this recapitalization, Petro also intends to restructure
$66.2 million of privately held Notes.


                                     - 15 -

<PAGE>

Petro has reached an agreement with institutional holders of an aggregate of
$149 million or 63.1% of such public debt and preferred stock to permit the
redemption of such securities at the closing of the Star Gas/Petro Transaction.
This agreement allows Petro to redeem its 9 3/8% Subordinated Debentures, 10
1/8% Subordinated Notes and 12 1/4% Subordinated Debentures at 100%, 100% and
103.5% of principal amount, respectively, and to redeem its 12 7/8% Preferred
Stock at $23 per share. In consideration for this early redemption right, Petro
has agreed to issue to such holders 3.37 shares of newly issued Petro Junior
Convertible Preferred Stock for each $1,000 in principal amount or liquidation
preference of such securities. Each share of Petro Junior Convertible Preferred
Stock will be exchangeable into .13 of a Star common Unit at the conclusion of
this transaction representing a maximum 104,000 MLP units. Should the 
transaction not be consummated, the Junior Preferred Stock will be converted 
into a like number of shares of Class A Common Stock.

Petro will offer to the remaining holders of Petro's publicly traded debt and
preferred stock the same right of early redemption under the same terms and
conditions as agreed to by the consenting holders. This proposal will be made
through an exchange offer that is expected to commence shortly. This transaction
and the associated Petro recapitalization is subject to receiving an agreement
to the early redemption from at least 90% of the outstanding publicly traded
debt and preferred stock.

Petro currently has a 40.7% equity interest in the Partnership and a subsidiary
of Petro is its general partner. After completion of the transaction, the Petro
shareholders will own approximately 26% of Star's equity through Subordinated
Units and General Partnership Interests. The holders of the Partnership's Common
Units (including an estimated 6.4 million Common Units that will be sold in the
Partnerships $140 million public offering) will own an aggregate approximately
74% equity interest in the Partnership following the completion of the
transaction. The General Partner of the Partnership will be a newly organized
Delaware limited liability company that will be owned by members of Petro's
current control group.

The Board of Directors of Star Gas has appointed an independent committee of 
directors to represent Star Gas in this matter. This committee has retained 
A.G. Edwards & Sons Inc. to act as its financial advisor and to determine the 
fairness of this transaction to the Star Gas Common Unit holders. The Board 
of Directors of Petro has retained PaineWebber Incorporated as its financial 
advisor and Dain Rauscher Wessels to render an opinion as to the fairness to 
Petro of this transaction.

The completion of the Petro Transaction is subject to the negotiation and 
execution of definitive agreements, the receipt of regulatory approvals, the 
approval of Star's nonaffiliated common unit holders and Petro's 
nonaffiliated common shareholders, other necessary partnership and corporate 
approvals, fairness opinions from A.G. Edwards & Sons Inc. and Dain Rauscher 
Wessels, and the agreement to early redemption by the holders of 90% of Petro's
publicly traded debt and preferred stock.

Noncompliance with The NASDAQ Stock Market Minimum Bid Price Requirement

The Company received notification from The NASDAQ Stock Market ("NASDAQ") that
its Class A Common Stock was not in compliance pursuant to the newly enacted
NASD Market Place Rules regarding the minimum bid price requirement. The Company
responded to NASDAQ outlining its position as to why NASDAQ should not take any
action to delist Petro's Class A Common Stock from its National Market System
("NMS"). Among the reasons given for not delisting the stock was the possibility
of the previously described Star/Petro Transaction. Should the NASDAQ Hearing
Panel not grant the Company's written request for continued listing on the NMS,
the Company would then request a full oral hearing on this matter as provided
for under the NASD Market Place Rules.

With the exception of the minimum bid price of $5.00 per share, the Company
currently meets all of NASDAQ's other alternate maintenance standards. The
Company, through its Board of Directors, has the corporate power to increase the
minimum bid price per share to amounts in excess of $5.00 by effecting a reverse
stock-split. Such an action would decrease the number of shares outstanding and
proportionately increase the market value of each share, and as a result allow
the Company to then meet the minimum bid price maintenance criteria to remain on
the NASDAQ NMS.

Alternatively, the Company could also request inclusion of its Class A Common
Stock on the NASDAQ Small-Cap Market since it meets the maintenance requirements
associated with this listing.



                                     - 16 -

<PAGE>



Item 6.       Exhibits and Reports on Form 8-K


        (a)  Exhibits Included Within:

                      4.10          Certificate of Designation setting forth
                                    resolution creating a series of Preferred
                                    Stock designated as 1998 Junior Convertible
                                    Preferred Stock.

                     10.28          Fifth Amendment dated as of July 15, 1998 to
                                    the Fourth Amended and Restated Credit
                                    Agreement, dated as of September 27, 1996,
                                    among Petroleum Heat and Power Co., Inc.,
                                    the several banks and financial institutions
                                    from time to time parties thereto and The
                                    Chase Manhattan Bank, as agent for such
                                    Banks.

                     (27)           Financial Data Schedule



        (b)   Reports on Form 8-K

              No reports on Form 8-K have been filed during the quarter for
              which this report is filed.
































                                     - 17 -

<PAGE>


                                    SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized:


<TABLE>
<CAPTION>

Signature             Title                                 Date
---------             -----                                 ----
<S>                   <C>                                  <C> 
Irik P. Sevin         Chairman of the Board, Chief          August 14, 1998
-------------         Executive Officer, and         
Irik P. Sevin         Chief Financial and Accounting 
                      Officer and Director           
                      



</TABLE>

























                                     - 18 -